An Underperforming Market Faces Challenges

As forecast, 2019 failed to capitalize on the preowned market’s two-year revival, and predictions for 2020 are even less bullish, as challenges facing shoppers include rising inventory, a shortage of late-model aircraft, and geopolitical and economic uncertainty.

“Buyers were far more hesitant in 2019 than in 2018,” sums up Steve Gade, Duncan Aviation’s vice president of aircraft sales and marketing communications.

Heading into 2019's fourth-quarter stretch, data showed a significant decline in activity. Through September, preowned business jet retail sales and lease transactions were down 19 percent year-to-date, compared with the same period in 2018, according to JetNet LLC, with some 9.8 percent of the in-service fleet—about 2,187 business jets—for sale. Preowned inventory reached its post-2008 crash low of 9 percent in October 2018 and has been climbing since then.

“All this points to a market in oversupply,” says JetNet vice president of sales Paul Cardarelli.

Meanwhile, positive market sentiment “fell off quite sharply in 2019,” notes Rolland Vincent, president of the eponymous consultancy that produces JetNet iQ surveys. The declining confidence, Vincent adds, “is not limited to one or another segment but is apparent across all geographic regions and across all business aircraft size categories.”

Turboprop activity bucked the trend, with inventory for sale remaining steady from the beginning of October 2018 to the same time in 2019 (1,051 and 1,052 aircraft, respectively), according to JetNet. AircraftPost, which tracks some 60 models of in-production and relatively new out-of-production light, midsize, and large-cabin jets, recorded more marked changes in sales and inventory. In the third quarter of 2018, the New York–based sales data company counted 280 transactions and 41 for-sale additions to its tracked fleet; for the same period in 2019, it logged just 172 transactions, while additions to the tracked fleet jumped by a factor of seven, to 280. Those figures compare poorly even with AircraftPost’s 2017 third-quarter numbers of 218 transactions and 29 inventory additions.

On the plus side, residual values appear to have backed off their precipitous declines of recent years. According to AircraftPost, the 2012 Citation CJ4 light jet dropped just 5 percent in value over the past year, to $5.8 million; a 2008 Gulfstream G150 lost 6 percent, declining to $4.65 million; a 2009 Challenger 605 held steady at $10 million; and a 2006 Global 6000 lost just 1 percent of its residual worth, dropping to $13.25 million.

Meanwhile, a handful of models saw price increases, including Cessna’s Citation XLS+ and Dassault’s Falcon 2000EASy, 900EASy, and 7X. The jumps ranged from 8.5 percent for the 7X to 21 percent for the XLS+. Though less desirable models continue a rapid descent, “the accelerated market depreciation days are behind us,” concludes AircraftPost founder and president Dennis Rousseau.

“It’s a very balanced market,” adds Mesinger Jet Sales founder, president, and CEO Jay Mesinger. “It’s leveling out, and that’s creating a very nice, balanced environment that makes it much easier for everybody to operate in.”

Encouragingly for the preowned market, several analysts and surveys detect a shift in preference among buyers from new to preowned aircraft. Honeywell’s 2019 Global Business Aviation Outlook found that 15 percent of those who typically buy new reported they would instead go preowned (“a higher-than-average transfer,” Honeywell noted), while operators around the globe expect to use preowned aircraft to replace or expand 32 percent of their fleets over the next five years—an 8 percent jump from 2018’s survey results.

Aircraft broker Jetcraft’s latest annual Five Year Business Aviation Market Forecast, covering 2019 to 2023, includes preowned-market projections for the first time, as well as predictions regarding new-aircraft deliveries. Preowned activity is “growing at a proportionately faster rate than new deliveries,” according to the report.

Jetcraft foresees 11,765 preowned transactions worth $61 billion occurring over the next five years. That compares with 9,389 deals worth $53.6 billion over the past five years. Looking forward, an economic downturn will likely “flatten” new deliveries, predicts the North Carolina–based brokerage, which anticipates that new-jet deliveries over the next half decade will be virtually unchanged from the prior period, to 3,444 from 3,442.

The pace of those deliveries will likely impact preowned activity, however. Honeywell’s results indicate that close to 30 percent of the purchase plans for used jets are for aircraft less than five years old or for models that have yet to start delivering. (Jetcraft just brokered the first aftermarket sale of a G500, a platform that didn’t even enter service until late 2018.)

But aircraft aren’t being produced in the numbers of a few years ago, and that’s unlikely to change. As of October 2019, many popular models were far off the pace of equaling 2018’s totals: Bombardier sold 57 Challenger 350s in 2018, but as of Halloween, it had delivered just 34 this year, according to AircraftPost. Gulfstream’s G650 deliveries, meanwhile, were a third off 2018’s total of 62; and Embraer’s Legacy 500 deliveries were barely half (seven versus the previous total of 13). Jetcraft president Chad Anderson sees the production decline as a positive, noting, “None of [the manufacturers] are overly bullish in ramping up for a balloon of orders…Our market got out of control, with speculative orders and flipping positions. All those days and lessons are behind us. I feel the manufacturers’ pipeline and plans represent a supportable business.”

If you’re curious about how your aircraft could fare value-wise, you might want to check out the second annual 15-Year Aircraft Residual Value Guide from appraisal and valuation company Vref. Published in October, it covers every currently manufactured fixed- and rotary-wing turbine, turboprop, and piston aircraft. The guide predicts that most new large-cabin aircraft—whether just introduced or long in production—will lose about half of their value or more during the period.

Bright spots exist among the smaller end of the bizav fleet, however. Embraer’s Phenom 300E is predicted to retain 68 percent of its value over the next 15 years, for example, while the Pilatus PC-24 is expected to retain 62 percent, the Citation CJ3 twin jets should hold 57 percent, and Cessna’s 208B Caravan and Pilatus PC-12NG turboprops are predicted to retain 70 percent. Topping the list, Cessna’s ever popular Skyhawk single-engine piston is expected to keep 80 percent of its value.

Among the unknowns going forward are the fate of non-ADS-B compliant jets and turboprops—some 5,500 aircraft, by Duncan Aviation’s calculations—and their impact on inventory. Installation of new equipment can and will salvage some, but how many is unknown. Meanwhile, industry watchers expect the shift toward “asset light” solutions—charter, fractional, jet cards, per-seat, and other non-wholly owned access programs—to affect new aircraft deliveries, also with unknown consequences. Almost six in 10 respondents who expressed an opinion in the third quarter believe this shift will occur, according to JetNet iQ.

But here and now, if you’re a shopper sitting on the fence with a need for an aircraft, just remember these comforting words from Duncan’s Gade: “There are great values to be had, which becomes clear especially when you accurately analyze the total cost of ownership.”